NTH :: RBI gives boost to affordable housing

Giving a boost to low-cost and affordable housing, the Reserve Bank of India (RBI) on Thursday said banks can provide home loans up to 90% for properties that cost up to Rs 30 lakh.

In a circular, the central bank said that in the case of ”individual housing loans” falling under the loan category of up to Rs 30 lakh, the loan-to-value (LTV) ratio is now up to 90%. Earlier, the facility was available only for properties that cost up to Rs 20 lakh.

This will definitely benefit home buyers who seek to buy properties in the range of Rs 20-30 lakh.

For properties above Rs 30 lakh and up to Rs 75 lakh, the LTV is up to 80% and those above Rs 75 lakh, the ratio is 75%.

The RBI has also modified the provisioning or risk-weights norms for home loans. Reducing the risk weights for individual housing loans to promote low-cost and affordable housing combines well with the government’s declared policy of ‘Housing for All’ by 2022. Banks can now push more housing loans given the lower risk perception of the regulator on the affordable housing segment.

The move by RBI comes in the wake of banks reducing interest rate on home loans following a 0.5% cut in repo rate last week by the central bank.

The move now is the last in a series of measures the RBI has initiated to boost the affordable housing sector. In July 2014, RBI had made home loans up to Rs 50 lakh in metros and Rs 40 lakh in non-metros, given by banks from the proceeds of long-term bonds (of minimum seven years maturity) qualified as affordable housing loans.

The RBI had also promised that it would periodically review the definition of affordable housing, on account of inflation.

Industry officials have pointed out that slashing risk weights attached to home loans and increasing loan amount are definitely going to help home buyers. Many believe that the step by the central bank would also improve customer confidence and provide a trigger to improve the overall sentiment.

However, in markets like Mumbai, where the real estate prices have moved up much above Rs 50 lakh even for affordable houses, this may not bring in any significant change, say the officials.

In its policy review last month, the RBI had proposed to lower the minimum risk weight on housing loans from the current 50%.

“With a view to improve affordability of low-cost housing for economically weaker sections and low income groups and giving a fillip to Housing for All, while being cognizant of prudential concerns, it is proposed to reduce the risk weights applicable to lower value but well collateralised individual housing loans,” it had said.

Lowering of minimum risk weight means that banks will have to set aside less capital for affordable housing loans leading to availability of more funds for the segment.